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Hi, my name is Jason Simpkins.

And if you’re at all familiar with my work, you know I’m an investment specialist who’s extremely active in the aerospace sector.

I’ve delved into every major aerospace company in the world, whether its client base is commercial, governmental, or both (which is most often the case).

I’ve even researched experimental frontier weapons that most people don’t even know exist — things like hypersonic missiles and directed-energy cannons.

But more recently, I’ve turned my attention to what I believe to be the last frontier market: space.

Maybe you’ve read my reports on satellite companies like Maxar Technologies and Astra. (If you haven’t, I encourage you to give them a look.)

If you have, then you undoubtedly know what a huge potential market the satellite industry is.

We’re poised to see more satellite launches in the next decade than we witnessed the past 63 years combined.

More than 12,000 satellites will be in orbit by 2028 — up from roughly 3,000 now.

And if we zoom in, the small satellite market could grow to $9.75 billion by 2027, up from a little more than $3 billion in 2019, according to Forbes Business Insights.

That’s a CAGR of 19%.

Hence my focus on Maxar and Astra.

But here’s the thing...

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It’s not just the satellite companies themselves that are going to profit from this trend.

It’s their parts suppliers.

That’s right, I’m talking about a genuine “picks-and-shovels” play.

And that’s what I want to tell you about now...

RAD RESISTANCE

While conducting a vast amount of research into satellites (their design, production, operability, etc.) I came across a company that makes the radiation-resistant components that are necessary to withstand the rigors of space.

To be honest, this is a problem I didn’t even realize existed — but it’s a universal challenge for satellite manufacturers and operators.

You see, one of the biggest issues for satellites in general is the harsh environment of space.

That can include extreme temperatures and space debris.

But more than anything else, it means radiation.

You might not realize this, but outside the protective cocoon of the Earth’s atmosphere is a universe full of radiation.

It comes in the form of rays, electromagnetic waves, and particles.

In some cases, radiation can be seen (visible light) or felt (infrared radiation), but other forms (like x-rays and gamma rays) can only be seen with special equipment.

However, regardless of their form or nature, these cosmic rays bombard satellites constantly, penetrating their surfaces and destroying sensitive electronics.

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So to withstand this permanent stress, electronic components for satellites must be hardened.

But that’s not all.

It’s not enough that these parts merely survive in space.

They must also operate at the highest, most efficient level possible.

They must communicate a constant stream of information across hundreds of thousands of miles.

And that’s what brings me to GSI Technology (NASDAQ: GSIT) — a company that not only manufactures radiation-resistant equipment but has vastly increased the computing power of micro-processors, reducing operational power consumption and costs.

So let’s take a closer look at its business...

THE GEMINI CHIP

First, GSI is a trusted provider of static random access memory (SRAM) products to the aerospace and defense industries.

I don’t want to get too far in the weeds with technical jargon, but there are two types of RAM:

• Static random access memory (SRAM)

• And dynamic random access memory (DRAM).

SRAM doesn’t refresh the way DRAM does, so it’s faster.

In real terms, SRAM has an access time of about 10 nanoseconds compared to 60 nanoseconds for DRAM.

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SRAM is more expensive, as a result, but when you’re building something like a satellite or smart bomb you definitely want the faster option.

And that’s what GSI makes.

Furthermore, as I mentioned, these components have the added benefit of being radiation-resistant or radiation-hardened to withstand the harshest environments imaginable.

This has been a solid business for GSI for a long time.

Some of its biggest customers include:

• BAE Systems

• Ciena

• Cisco Systems

• General Dynamics

• Honeywell

• Lockheed Martin

• Raytheon

• and Nokia

In fact, sales to Nokia totaled $2.8 million, or 36.5%, of GSI’s net revenue in the fourth quarter.

However, the market for computer chips is fast-moving. You can’t just keep building the same microchips forever. You have to get better, get faster.

And that’s why GSI is pivoting from its legacy SRAM business — keeping profitable portions intact, but now pouring its R&D spending and major efforts into the next generation of computer chips.

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Namely, the Gemini Associative Processing Unit (APU).

The Gemini chip is the future of computing.

This is because it solves something called the “Von Neumann Bottleneck.”

Again, I don’t want to lose anyone, but it’s not that complicated...

Basically, in most every situation, computers’ processors and memory are kept separate.

So if those two computers are going to interact they will first do so processor to processor. But then there’s the added step of each processor returning data to and from its memory.

Visually that looks something like this...

That’s the Von Neumann Bottleneck.

Well, GSI’s Gemini associative processor unit (APU) obliterates that bottleneck by bringing memory and processing together under one roof.

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It looks like this...

When you put it like that, it all seems pretty simple.

But this is actually a tremendous leap forward for computing technology.

It saves time, space, and cost.

It reduces computation times from minutes to seconds.

It reduces power consumption, and thus, cost.

And its parallel data processing contains 2 billion bit processors per chip compared to just thousands in a typical graphics processing unit (GPU).

Once more, we’re drifting into tech speak, but what you really need to know is that this is next-level processing and it’s absolutely necessary if we’re going to optimize cutting edge technologies like AI, facial recognition, genomics, cryptography, and more.

These operations are taxing — they require more from modern microchips.

And that’s especially true of satellites, which have the hardest job of all.

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“We need spacecraft that can control themselves so they don’t crash into other satellites, and to reposition themselves for communications. For this we have a need for artificial intelligence,” says Paul Armijo, GSI’s aerospace and defense business sector manager. “We have developed an AI chip for space that is radiation-tolerant to enable artificial intelligence, data fusion, automatic target recognition, and for recognizing weather events.”

No doubt, today’s sensor-intensive satellites need oodles of on-board processing because satellite uplinks and downlinks simply don’t have the bandwidth to exchange so much data with ground stations.

“Satellites have so many sensors that it becomes untenable to push that data down to Earth, process it, and then tell the vehicle what to do,” says George Williams, GSI’s director of data science. “That data could be optical imagery or synthetic aperture radar; these are massive data sets.”

This is why NASA has already awarded GSI a Phase 1 contract to develop an optimal real-time data sorting inference processing unit (IPU) board for Earth observation missions that require higher processing power.

“The cross-cutting radiation-tolerant space on-board data processing product resulting from the NASA contract has the potential to enable many potential NASA space missions, including both manned and unmanned landers and experiments,” GSI said in a statement.

And that’s not even the half of it.

The Gemini chip is already hard at work here on Earth as well.

In 2020, GSI collaborated with Israel’s Weizmann Institute, which used the Gemini-1 APU in its efforts to develop treatments for the coronavirus.

In that capacity, the Gemini chip was used to find active chemical compounds structurally similar to Remdesivir that could target the coronavirus.

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“Compared to a CPU, our processor speeds up discovery by performing multiple versus solitary searches and reducing response times from many minutes to seconds,” GSI Chairman and CEO Lee-Lean Shu noted.

This is another huge potential market for the Gemini chip going forward as there’s no shortage of diseases to fight. To the contrary, the search for new biotech treatments is expanding and expanding quickly.

And since a central premise of medicinal chemistry is that structurally similar molecules exhibit similar biological activities, the Gemini chip could be a key part of that search.

“By providing complex computational results quickly, the APU can speed up the drug discovery and development phase, saving valuable time and research funds,” said Dr. Avidan Akerib, GSI’s vice president of associative technologies. “GSI’s APU solution is highly scalable and ideal for big datasets that require high computational speed and inference in production systems.”

But again, that’s not all.

In December 2020, MAFAT, the Israeli equivalent to DARPA, challenged technology companies to develop a processor that could distinguish between humans and animals in radar signal segments.

There were 1,000 participants and over 4,000 entries.

And GSI’s Gemini chip came out ahead of them all.

That’s not just a point of pride, either. It’s an indication that this chip could be a major player in facial recognition technology.

So across the board, the Gemini chip has proven it excels in similarity search...

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And that gives it a huge range of practical and cutting-edge technological applications.

Better still, an improved version of the chip, Gemini-2, will be finished by the end of this year or in early 2022.

It will have eight times the storage and two times the speed of Gemini-1.

So what’s GSI’s Gemini chip platform actually worth?

It’s hard to say exactly, but it’s almost certainly more than the company’s current market value.

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A STRONG FOUNDATION AND LIMITLESS POTENTIALGSI currently has a market cap of $142 million.

However...

As of March 31, 2021, the company had $54 million in cash, cash equivalents, and short-term investments, and $5.8 million in long-term investments.

Its legacy SRAM business generates revenue of $40 million to $50 million annually, and is likely worth as much as $75 million.

And its headquarters, which the company purchased in 2010, has an estimated value of $7.5 million–$10 million today.

So GSI’s enterprise value is pretty close to its market price.

But that doesn’t factor in the massive potential of the Gemini chip, which could eclipse hundreds of millions.

Just for a frame of reference: Intel recently acquired two AI chip manufacturers — Nervana Systems and Habana Labs for $400 million and $2 billion, respectively.

And that’s nothing when you consider Allied Market Research estimates that the global AI chip market will grow at a 45% CAGR over the next several years, reaching $91 billion in 2025 — up from $6.6 billion in 2018.

Furthermore, that growth will be further augmented by the aforementioned growth in satellites.

Remember, even small nanosatellites cost roughly $1 million a piece. So with 12,000 satellites expected to be in space by 2028, we’re already at $12 billion just for the satellites to be built.

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Again, we’re looking at parallel markets with tens of billions of dollars in growth to be had.

And GSI is poised to tap right into those streams with its Gemini chip and rad-resistant technology.

Basically, investors are paying next to nothing to access a revolutionary AI chip platform, while GSI’s balance sheet, assets, SRAM business, and rad-resistant technology bring serious stability.

Get the company for less than $6.00 per share — where it’s currently trading is an absolute steal.

Fight on,

Jason Simpkins

Editor, Wall Street’s Proving Ground

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